They share the prize for their separate work on economic governance, organization, cooperation, relationships and nonmarket institutions.

Both professors teach at American public institutions: Ms. Ostrom at Indiana University, Bloomington, and Mr. Williamson at the University of California, Berkeley.

Ms. Ostrom’s work focuses on the commons, such as how pools of users manage natural resources as common property. The traditional view is that common ownership results in excessive exploitation of resources — the so-called tragedy of the commons that occurs when fishermen overfish a common pond, for example. The proposed solution is usually to make users bear the external costs of their utilization by privatizing the resource or imposing government regulations such as taxes or quotas.

Ms. Ostrom’s empirical research has shown that this explanation is “overly simplistic,” the prize committee says: There are many cases around the world in which common property is “surprisingly well-managed.” In these cases commons users “create and enforce rules that mitigate overexploitation” without having to resort to privatization and government regulation (which can both pose their own practical difficulties).

The grasslands in the interior of Asia — shared for centuries in traditional group-based governance — are one such example. They appeared to fare better under group-based systems than under either socialism or privatization.

Ms. Ostrom received her Ph.D. in political science at U.C.L.A., and said in a phone interview during the prize committee’s announcement that she considers herself a political economist. She said she hopes her work may guide policy on climate change.

Mr. Williamson’s work focuses on the boundaries of the firm, and the reasons for economic activity inside of firms: Why is there so much vertical integration in the marketplace? Why don’t we all just work for ourselves and sign contracts with each other instead of working together inside of a big company?

His work argues that “hierarchical organizations sometimes dominate markets because they provide a cheaper way to resolve conflicts,” the committee writes. When two employees quarrel about how best to use resources, a chain of command within the firm — usually leading back to a single chief executive — makes the decision about who is right. In contrast, in the markets, both parties would have to keep negotiating until they reach an agreement of some sort, which takes time and money.

Such a firm-based hierarchy is less necessary, however, if the two parties can easily achieve an enforceable contract, or find new trading partners.

Mr. Williamson was unavailable during the prize committee’s announcement in Sweden.

When asked whether the events of the global credit crisis factored into their choice of prize recipients, a committee official said that the prize is typically not given based upon events of the past year, but rather a body of work.

More to come.

Update: An earlier version of this post incorrectly named the school Ms. Ostrom works at. It is Indiana University, Bloomington, not the University of Indiana, Bloomington. Apologies for the error.

well.. we’re going to find out if her theories are true with climate change aren’t we?

I’m struck by the phrase “surprisingly well” in regard to group cooperation …..for resource utilization.

I probably is not smart enough to understand the nuances of the theory but there are tons of counter examples in this world.

Just look at the Salmon issue in the Northwest where there is nothing but controversy about the things required to maintain a sustainable fishery.

Take a look at the Chesapeake Bay which has thousands of people and billions of dollars ostensibly committed to saving the crab and oyster fisheries and they have failed to even arrest the decline much less return the fisheries to sustainability.

the problem with this theory is that it assumes that some “sub-group” owns the resources when in many cases – it many, many groups – with competing interests and some will not participate in the governance – see George Bush approach to greenhouse gases.

This is a total rip off! Everyone knows that Obama should have won the Nobel in Economic Science. Obviously the Nobel committee did not realize that Obama should win in every category. He has been just as successful in economics as he has in peace…I wonder is racism is involved?

I’m so excited that Dr. Ostrom won! The frameworks that she’s developed with other professors is amazing, and quite common sense like as well.

And with all due respect Larry G, just because some cases are not managed properly doesn’t discredit research that shows properly managed/robust systems in other areas. And most of the group cooperation that is done well, is that of small groups – in the case of fisheries, small scale fisheries that don’t have thousands (maybe millions) of consumers to answer to. I definitely understand the frustration with not seeing positive work in those systems, but I would highly suggest that you read more of Ostrom’s (and others) works and take a look at some of the ‘successful’ cases yourself.

The timing of comment #6 is odd. In many years, the prize has been awarded to theorists and other economists whose work had little (or, even worse, negative) affect on people’s lives. But this year’s award, at least Elinor Ostrom’s half, is different. When mainstream theory predicts either complete failure or complete success of institutions, it is important to understand why some institutions work and some don’t (see comment #1), and to see if we can learn any lessons from the former to apply to the latter. Ostrom has done that, particularly for institutions in the developing world, where governments and markets often don’t work well (to put it mildly). There are fishermen in those countries whose lives have been (positively!) affected by her work.

Dr. Ostrom’s work has had an important and positive impact on sustainable development by empirically and theoretically challenging the economic orthodoxy that was bluntly used to privatize land, resources and today knowledge, under the direction of the World Bank. Her work is an intellectual challenge to economics, and this prize is a recognition to the limits of economic theory and methodology, and the potential of political science to contribute to our understanding of the world.

Her work inspires and informs students interested in sustainable management of natural resources, cooperative behavior and organizations, and local empowerment and use of public goods. Through them, it will continue to have a positive impact on management and development.

The media needs to improve how they are explaining the significance of her work. It is no small thing to have challenged the truism of the ‘tragedy of the commons’, the guiding principle on property management for generations.

Elinor Ostrom is a guiding light. She seeks to develop the field of sustainability science by developing diagnostic approaches to problem solving. This award is VERY well deserved. Ostrom debunks the spin that privatization is required for robust natural resource management. Commons-based approaches work.

ALERT: Right now the Obama administration is set to privatize access to U.S. fish resources at the behest of an intriguing clique of privatization proponents – libertarian think-tanks, big-corporates, hedge-fund types, allied philanthropic funders, and greenwash group front-people. If they are successful coastal jobs will be lost, ocean ecosystems will suffer, and the public trust doctrine will be negated.

If Dr. Jane Lubchenco, the head of the National Oceanic and Atmospheric Administration (NOAA), is truly interested in a science based, sustainable and fair approach to management of valuable public fish stocks she will avert making a policy statement in support of a privatization platform based on self-serving spin and discredited rhetoric.

Food & Water Watch is the main organization working to displace the privatization spin with a common sense commons-based solution:

The Affordable Care Act imposes economic burdens that are the equivalent of taxes, an economist writes. Read more…

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